Angry Investors Say Goodbye to AOL Chief

AOL Time Warner Inc. chief Gerald Levin ended his 10-year reign over the world’s largest media conglomerate Thursday as many shareholders blame him for selling the prized Time Warner assets to an overvalued Internet giant at a fire-sale price.

Looking gaunt and distraught at the company’s annual shareholder meeting Thursday, Levin turned over his job as chief executive to protege Richard Parsons with a plea to investors for “faith, hope and, above all, patience.”

In a solemn four-minute address, Levin thanked his family; his “sturdy Irish wife” of 32 years, Barbara; board members and executives past and present; and the company’s 90,000 employees.

“It has been a stunning ride,” said the slight, 63-year-old Levin. “What will I do now? I’m not going to Disney World.... I now close my business career and fade away.”

The applause at the company-owned Apollo Theater was restrained. Then five isolated supporters, including the Rev. Jesse Jackson, stood up, and after several moments a polite standing ovation took place.

One AOL Time Warner executive said the company had been prepared for Levin to be booed off the stage.

“It’s a sad ending,” said Jessica Reif Cohen, a media analyst at Merrill Lynch & Co. “But this is the worst acquisition in media history, given the decline in market value of AOL.”

Capping a decade of deal- making, Levin was heralded as the media industry’s most visionary leader in January 2000, when he unhatched the audacious merger of new and old media by agreeing to sell Time Warner to America Online for stock then valued at $156 billion.

Since then, the value of the combined company’s stock has plunged to about $84 billion as the dot-com bubble burst and AOL’s Internet growth slowed. There also has been speculation that Levin was nudged out by AOL Time Warner Chairman Steve Case because of his increasingly autocratic style.

At the Apollo Theater on Thursday, many shareholders were furious. They lined up at microphones and faulted Case and Parsons for everything from poor high-speed Internet service and a disappointing stock price to bad management and excesses such as a new Manhattan headquarters under construction, which one investor referred to as a replica of the Taj Mahal.

‘Get the Job Done,’

Shareholders Say

One woman, who said she has owned Time Warner stock since the 1980s, asked shareholders to vote against the entire 15-member board of directors, seated in the front row of the concert hall.

“Time Warner received a pig in a poke,” she said. “We were conned into this.”

Michael Hariton, 36, a private investor, delivered a blistering tirade against AOL Time Warner’s executives, demanding that they bring down the company’s $27 billion in debt.

“Get the job done,” Hariton said, his face reddening. “These are our hard-earned dollars, and you have decimated them.”

As Parsons takes over AOL Time Warner, his task is to reverse declining advertising sales and slower subscriber growth at its Internet service. AOL Time Warner has cut financial forecasts twice since September, and its shares have fallen 41% this year.

“[Our] growing pains have been aggravated by the ad recession,” Parsons said.

Yet Parsons vowed to restore investor confidence by revitalizing the online service, maintaining the “integrity” of the company’s finances, simplifying the structure of the company and re-energizing the staff.

But his lack of details infuriated some shareholders, who charged that they were being given, as one put it, “lip service.”

Parsons, who served as Time Warner president under Levin, called his old boss a mentor, a teacher, a strategist and an asset builder whose transformation of publishing company Time Inc. into the world’s most powerful media giant will be measured accurately only with the passage of time.

Since Levin agreed to sell Time Warner to America Online, the value of the world’s leading Internet service has plummeted about 92%, according to a Merrill Lynch report published Wednesday. By comparison, the collective value of Time Warner assets--including cable channels HBO, CNN and TBS; movie studio Warner Bros.; Time, People and Sports Illustrated magazines; and Time Warner Cable--has remained relatively stable, according to the same report.

AOL’s stock peaked at about $95.80 a share a month before the merger was announced. Shares of AOL Time Warner closed Thursday at $18.90, up 5 cents, on the New York Stock Exchange.

Levin struck the AOL Time Warner deal at the height of the dot-com mania, when the Internet was seen as the next great pipeline into the home for delivering news, information and entertainment.

Orchestrating

Acquisitions

Levin also had been at the forefront of nearly every advance in television technology since the 1970s. Levin, shortly after joining Time Inc. in 1972, persuaded his bosses to transmit HBO cable programs by satellite instead of by videotape, which led to an explosion of the number of possible cable channels. It was also Levin who, after orchestrating the marriage of Time Inc. and Warner Communications in 1992, looked to leverage the company’s publishing and movie businesses by pushing more aggressively into the cable business.

Levin later bought Turner Broadcasting System, giving his company a wide array of cable channels to feed through his pipes.

The next step was to use cable’s speedy pipes for connecting to the Internet and for receiving phone calls. There, Time Warner faced two rivals with head starts: AT&T; and America Online.

Rumors in the fall of 1999 that AT&T; was talking to America Online about a potential merger put Levin on the defensive, sources said. Levin also was worried about a hostile takeover of Time Warner by AOL.

“Jerry thought that two outcomes were unbearable: a hostile takeover and an AOL-AT&T; merger,” said one media executive involved in the situation.

Few media pundits questioned the wisdom of the AOL-Time Warner deal when it was announced.

By the time the companies merged in January 2001, however, the dot-com boom was waning. Soon AOL’s Internet service, which Levin had promised would be the growth engine of the new company, began to sputter. Yet as other media companies revised their sales projections, Levin stuck with his aggressive forecasts.

Then came the events of Sept. 11, which had a devastating effect on Levin, whose son Jonathan had been murdered in 1997. Company executives said the terrorist attacks served as a horrifying reminder for Levin of his personal tragedy. In Levin’s farewell address Thursday, he referred to the “unfathomable emptiness of a violent death” and his empathy for the victims.

Levin maintains that the decision to retire early was his alone.

But sources said the AOL Time Warner board was worried about Levin’s “unrealistic financial expectations,” and they said Case had become concerned that Levin was making decisions without consulting him.

At a board meeting at America Online headquarters in November, director Ted Turner made an impassioned speech calling for a management change, said a source close to him. Turner, one of the largest individual shareholders of AOL Time Warner, was upset when Levin announced management responsibilities for the merged company and cut Turner’s operating role.

Since then, Turner also had become angry as his portfolio of AOL Time Warner shares dropped in value and had asked his financial advisors to present to Case details about the company’s underperformance.

One source said that after the November board meeting, individual board members approached Levin about the possibility of his stepping down voluntarily.

Case also was angered by an expensive--though losing--bid by Levin in early December for AOL Time Warner to buy AT&T;’s cable business, sources said. While Levin was eager to make his company the biggest cable operator, Case opposed the move.

Within a week, Levin announced early retirement, saying he was looking to put “the poetry” back into his life.

Times wire services were used in compiling this report.